All Topics / Help Needed! / Tax Question on Rental Income

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  • Profile photo of brunowabrunowa
    Participant
    @brunowa
    Join Date: 2008
    Post Count: 27
    January 8, 2010 - 1:10 am

    Hi All,

    Quick question regarding tax on rental income for two scenarios:

    If my repayments on a 2 bedroom apartment are $2,200 per month and I rent out the whole place for $450 per week ($1,800 per month) do I have to pay tax on that $1,800, or as it does not cover my interest payments I do not need to pay?

    Secondly, if I rent out one bedroom for $200 per week ($800 per month) while I live in the other room, how would I be taxed for this? Or once again as it is not covering my principal and interest repayments am I not taxed?

    Any help is much appreciated.

    Regards,

    Brendan

    Profile photo of UnrealUnreal
    Member
    @unreal
    Join Date: 2009
    Post Count: 25
    January 8, 2010 - 1:36 am

    For scenario 1:  From the rent rec'd for the entire year, subtract all of your expenses including; interest, insurances, rates, water, REA fees, maintenance.  What ever is left over you pay tax on.  This is called positive gearing.  If the expenses are greater than the rent you claim this loss at tax time.  Your taxable income for the year is reduced by this amount.  Called negative gearing.

    I am not sure exactly how scenario 2 would work.  I think you would try to work out what percentage of the house is being rented, and that same portion of the expenses (interest, rates, repairs etc) would be taken away from the rent.

    HTH

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213
    January 8, 2010 - 3:18 am

    Repayments are not all expenses, only the interest portion is.

    What you need to do is add up all expenses and depreciation and then deduct this from the income. If it is a profit it is added to your other income and you pay more tax, if it is a loss (negative gearing) then you minus from other income and you will save tax.

    For scenario 2 you would just do the same as the above but for a percentage. eg. if you are renting 50% of the house out you claim 50% of the costs. Also beware that this may make 50% of your house suject to CGT.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

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